REPORT: Banks Shift Billions from Logistics into Construction Projects

A version of this article appeared on Business Daily Africa.

Commercial banks placed their biggest bets on construction projects in the year to April. They quietly pulled billions of shillings out of the logistics and communications sectors during the same period.

The shift indicates where lenders see stronger economic expansion opportunities ahead. Banks redirected credit toward sectors viewed as less risky and more profitable overall.

Outstanding loans to the private sector rose by 6.3 percent. This increase added Sh386.3 billion to bring the total to Sh6.48 trillion in April.

The growth reversed a contraction recorded a year earlier. It came after the Central Bank of Kenya started cutting interest rates.

Borrowing costs have eased significantly for businesses. The weighted average lending rate dropped to 14.38 percent in June from a peak of 17.22 percent in November 2024.

This change ended nearly three years of rising interest rates. It encouraged companies to revive expansion plans that were postponed earlier.

Equity Bank Group chief executive James Mwangi described last year as defensive. He said banks focused on optimisation before shifting to loan book growth.

Lenders continue to remain selective with capital deployment. Loans to the building and construction sector recorded the fastest growth at 32.1 percent.

The sector expanded by Sh48.7 billion to reach Sh200.6 billion. In contrast credit to transport and communications businesses declined by 9.6 percent or Sh34 billion.

This reduction left the category at Sh320.4 billion. It extended a second consecutive annual decline in exposure.

The pattern suggests banks see better returns and lower risks in construction. Economic activity shows gradual improvement across both sectors.

Resurgence in construction lending follows government efforts to restart stalled road projects. Hundreds of schemes resumed after addressing a large backlog of contractor payments.

More than 500 road projects came back on track from 2025. The Roads ministry supported this with a return-to-work arrangement and initial payments of Sh123 billion.

The steps restored cash flows for contractors. They also renewed demand for financing from commercial banks.

Construction activity picked up pace during the first quarter. Kenya National Bureau of Statistics figures show the sector expanded by 6.6 percent.

This outperformed the 4.5 percent growth from a year earlier. The uptick was driven by a 17.9 percent rise in cement consumption plus higher imports of key materials.

The building and construction category includes lending to real estate developers and civil engineering contractors. It serves as a useful gauge of investment appetite in housing and infrastructure projects.

Transport and communications credit covers logistics companies along with telecom operators. Despite this transport and storage output still grew 3.6 percent in the first quarter.

Cargo volumes through the Port of Mombasa increased while diesel consumption rose nearly 10 percent. Standard Gauge Railway traffic recorded double-digit growth in both freight and passengers.

Lenders however stayed cautious about fresh credit to the sector. Concerns appear focused on profitability leverage and future investment needs.

Manufacturing loans also came under pressure with a 3.4 percent decline. Other areas that saw credit growth included agriculture finance and wholesale trade.